The House and Senate have each passed different versions of HB 2034, the bill that would terminate the Law Enforcement Officers’ and Firefighters’ retirement system Plan 1 (LEOFF 1) and create a restated LEOFF defined benefit retirement fund. This would allow the state to extract expected surplus funds in the plan. The two versions differ mainly in where they would transfer the money.

According to the fiscal note from the Office of the State Actuary (OSA), LEOFF 1 will be 226% funded on June 30, 2029. Both versions of the bill would first transfer enough assets from the current LEOFF 1 to the restated plan on June 30, 2029, so that the restated plan is 110% funded.

Then, any additional assets would be transferred to other accounts. OSA estimates that these additional assets would total about $4 billion.

The estimate of the size of the surplus could change between now and June 30, 2029. Additionally, there is some risk that the restated LEOFF plan could develop an unfunded actuarial accrued liability (UAAL) in the future that would necessitate additional funding. OSA notes, “we do not expect a UAAL to emerge under this bill. However, a UAAL could emerge in the future if experience does not align with our assumptions.” Indeed, “Within our 2,000 economic simulations that vary investment returns, we found the portion of scenarios where a UAAL emerges by Fiscal Year (FY) 2045 increased from 5% to 40% as a result of this bill.”

The House-passed version of HB 2034 would transfer $569 million to the climate commitment account and the remainder to the pension funding stabilization account (PFSA) on June 30, 2029. Then, the bill would allow money in the PFSA to be transferred to the general fund–state (GFS) in 2027–29.

The Senate-passed version would transfer the full amount to a new pension surplus holding account on June 30, 2029. The bill would allow money in the pension surplus holding account to be transferred to the GFS in 2027–29.

Thus, both versions of the bill would transfer funds from a restricted account to accounts that are easily accessible. However, that will not help the Legislature balance the budget this year.

All the transfers would occur on the last day of the 2027–29 biennium, and the Legislature will not appropriate funds for 2027–29 until next year. That said, 2027–29 is part of the current outlook period, so it’s possible the Legislature could make some assumption about the $4 billion in the outlook for the 2026 supplemental budget. The Senate-passed supplemental operating budget did not assume any resources from HB 2034 for 2027–29. The House-passed budget assumed that $880 million would be transferred from the PFSA to the budget stabilization account.

The expected surplus would be one-time money. Using it for ongoing appropriations would not be a sustainable choice.